The electric vehicle market may be booming, but the path ahead for all related companies is not necessarily straight. EV startup Lordstown Motors (NASDAQ:RIDE) just fell victim to a bearish price target issued by an analyst. As a result, RIDE stock has reacted in a way that supports that hypothesis, plunging almost immediately.
What’s Happening With RIDE Stock
Yesterday evening, Morgan Stanley analyst Adam Jonas issued a downgrade, moving RIDE stock from a “hold” to a “sell” while slashing his price target for the stock from $8 to $2. This is exactly the sort of drastic prediction that can trigger a selloff, and so far that seems to be what we’re seeing.
RIDE stock fell by more than 7% in pre-market trading today and as of this writing, is down 6.5%.
This comes on the heels of a profitable previous week after Lordstown announced a partnership with international electronics producer Foxconn, which sent shares up by 8%.
What It Means
Jonas acknowledged the upside of the partnership for Lordstown but doesn’t think it should mean much for investors. As he stated in the report “While the agreement with Foxconn helps secure the future of the Lordstown plant and buys time to explore other business opportunities for RIDE (new programs, new platforms, new segments that have yet to be developed), we believe there would likely be little left for shareholders.”
The short term future in the red for RIDE stock that he sees stems primarily from the deal that Lordstown will be receiving in the sale. According to the report, the $230 million that the company will be netting is less than 20% of the plant’s overall value.
Why It Matters
Assuming that everything said by Jonas is true, Lordstown would certainly be taking a loss in the plant sale.
The company’s need for cash is clear, as its cash balance of roughly $225 million is a decrease of $366 million from where it was at the end of the previous quarter. That said, Lordstown needs the cash to expand manufacturing operations and begin the limited production on its highly publicized EV truck, the production for which is expected to begin in late 2021.
EV producers across the globe have failed to deliver on production targets and Lordstown doesn’t want to be among them. Successfully getting an EV truck to market could help get the company back on track, especially one made on U.S. soil where such vehicles are still not being widely produced.
The million-dollar question is, will sales of the new model be enough to offset the loss the company is taking in the upcoming sale? Adam Jonas doesn’t think so, but the stock is worth watching as both the deal and operations move forward.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
